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Business Services  •  Business Tax  •  Personal Taxation

Now HMRC wants a slice of your side hustle action!

By RJP LLP on 23 January 2024

hmrc side hustle tax

Are you one of the 44% of people in the UK with a side hustle? Among Gen Z this proportion is even higher, with over 70% doing a bit of wheeling and dealing in their spare time. And why not? Over the last couple of years, it has become a very popular and handy way to make extra money, especially if you manage to turn your passion into a little business.

According to the price comparison website Finder.com, side hustles can be relatively lucrative, with average income being made in the region of £206 per week, or £10,701 per year. The most common one is people selling their unwanted clothes online which is becoming a very important element of the circular economy. Given all the online platforms out there connecting buyers and sellers, it’s no wonder side hustling attracts such a high level of interest.

Now HMRC wants to get in on the action too.  They are clamping down heavily on anyone they discover who isn’t declaring their little bit on the side and have set a new tax free limit of just £1,000 for allowable earnings. You might be wondering whether to bother declaring your income. How will they find out after all? Be assured that they will!

To ensure that HMRC can maximise its revenues from side hustlers and catch offenders, they have recently introduced new rules requiring all online platforms to disclose details of traders – people who are selling goods and services. Online platforms have until January 2025 to submit a report detailing the names of all individual sellers and the volume of their sales to ensure they do not evade tax, or in HMRC’s words, to ‘bear down on tax evasion’. HMRC already gets detailed information from banks, building societies, investment houses and rental agents so this is just an extension of the third party intelligence they already use.

The types of activities and business sectors affected by this new reporting requirement are traded on all the obvious online platforms and involve a broad array of services. These can range from taxi hire, food delivery, selling handmade items and the rental of properties for short-term accommodation. The platforms involved include all the major websites - Etsy, eBay, DePop, Vinted, Amazon Seller Central, Gumtree and Airbnb. HMRC is clearly taking this programme very seriously and has invested £36.9m to develop an IT a system for online marketplace reporting.

One very common way to make some extra money is to re-sell unwanted clothing. This is viewed differently for tax purposes. A spokesperson for HM Revenue & Customs (HMRC) has commented as follows to clarify the situation: “If you are just selling unwanted items that have been lying around your home, it is unlikely you will have to pay tax. In order to pay tax on the goods you sell, you either have to be trading or make a capital gain.  If you are trading you will be self-employed.”

There is also a caveat regarding which traders will need to pay tax because online platforms will not be required to report on individuals who have registered fewer than 30 sales, even if the value of sales exceeds the tax free limit.

The rules state that anyone can earn up to £1,000 a year through self-employment, but anything over this figure is liable to tax and must be reported to HMRC. Penalties will be imposed on people who do not comply. All sellers regardless of how much they earn through their hustles must also register themselves as self-employed and provide details of their income and earnings on a self assessment tax return. Tax returns must be filed with HMRC together with any tax payments due for the tax year in question by 31 January following the end of each tax year. If you are new to self assessment then you must tell HMRC by 5 October in the tax year and they will issue you with a self assessment tax return.

If you need expert help with your self assessment tax return, please get in touch via partners@rjp.co.uk.

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